There's a an old piece of financial advice that says you should own the shares of companies that profit off you – banks, utilities and telecom and energy companies, for example.
Here's an idea for people who rent their housing instead of owning – invest in the shares of Canadian Apartment REIT (CAR.UN). CAP, as it's known, is a blue chip name in the world of real estate investment trusts and the third largest name in the S&P/TSX capped REIT index as ranked by market capitalization behind RioCan and Allied Properties. CAP's property portfolio is focused on multi-unit residential properties – apartments, townhomes and mobile home communities – located mainly in Ontario, New Brunswick, Quebec, Alberta and British Columbia. The properties cover the entire market, from luxury through mid-tier to affordable.
Analyst Harry Levant of IncomeResearch.ca says that steady growth, acquisitions, stable high occupancies, rising rents and control over expenses have contributed to an average 3.3-per-cent annual increase in distributions since inception in 1997. Own CAP shares and you stand a good chance of your annual distribution increases more or less matching the rate of your rent increases. The security of those payouts is strong, by the way. Mr. Levant says that adjusted funds from operations, a measure of financial performance for REITs, has risen enough since 2011 to bring CAP's payout ratio down to an average 75 per cent from 83 per cent.
Mr. Levant says CAP's property skew to eastern and central Canada has insulated it from the impact that low energy prices have had on Western Canada. CAP is also holding up well in the decline of REITs that has happened alongside the recent bond market selloff. The capped REIT index was down 5.5 per cent for the month to Nov. 15, while CAP was up 2.4 per cent.
CAP has also been a steadier long-term perform – its cumulative three-year gain is 43 per cent, compared to a decline of 2.3 per cent for the index. CAP shares were trading in mid-November in the low $30 range, which is right in line with Mr. Levant's 12-month price target of $31. The shares yield about 4.1 per cent.